Comparing Types of Trades | Trading A Smaller Account
well good morning everyone welcome to trading a smaller account my name is barbara armstrong i'm a coach with td ameritrade and delighted to start off every friday with all of you so do you ever ask yourself the question when should i use a stock um to make gains in you know a smaller account or when should i use an option so we're going to explore that today there's going to be lots of great stuff so stick around lots of awesome stuff about to come your way [Music] all right well i love this class i love that so many of you set an alarm and make a point to get up and join us live on a friday morning so good morning to vijay and krishna and mia and john the first four into the chat this morning in el diego and michael and charles and srinivas and ken who not only shows up early can uh rose and brings a wealth of experience with him but also starts giving us tips on you know what we can expect at the market open so i really appreciate you being here ken um and to nelson and and jack and osborne and queen bee and many others thank you so much for joining us today if you are joining us for the first time know that you just aren't tuning into a webcast you are if you choose to be linking arms with a group of like-minded people and we are figuring this out together my friends so welcome to each and every one of you if you have questions this is an intermediate level class but go ahead type those questions into the chat and ken and i will do our best to address them throughout the webcast if you are one of the many who watch this in the archives know that you too can ask questions just by you know typing a comment into the chat or if you loved it you can type that into the chat as well the third way to reach ken and i is via twitter cans handle at k rose underscore tda mine is at b armstrong underscore tda and this is just another way for ken and i to deliver valuable content to you throughout the trading day outside of webcast like this and it's also a way for you to be able to you know reply to a tweet and ask us a question doesn't have to be even related to the tweet but i'll go back and i go back you know to the beginning of each week every day and just look at every single comment on those so that's another another way to ask questions so this is a free service guys um ken and i both really just follow people in our trading world you know and investing world um and that's what we're posting about so um it's a resource available for you to use let's get through our important information so we can get right out to the platform where the magic happens so first and foremost everything we do in this class is for education and informational purposes only you're going to see today us placing you know multiple trades on one stock and while one might choose to do that in a live trading account often one might not but in our paper money account this is a perfect place for us to learn so we use thinkorswim for that know that options aren't suitable for all investors there are special risks inherent to options trading we talk about those in each and every class if you're new to td ameritrade know that um you have to apply for option trading privileges um you've got to take transaction costs into account when you're doing multiple leg strategies we're going to do an iron condor today which is four legs to get in so four transaction costs at 65 cents a pop okay and all investing involves risk including the risk of loss okay now if you're saying oh she said this was an intermediate level class and you know i might not fit in i encourage you stick around and if i'm talking about a strategy you're not familiar with let us know we can put a link in to a an introductory level class on that strategy okay so what are we going to do today well we've decided in this class we're going to do a very quick market overview at the beginning of the class then we're going to look at managing a couple of trades because people will often type into the chat and say hey what happened to that iron condor that we did on the russell or what happened to you know that short put vertical trade we did on tesla or whatever it is so we're going to look at a couple of those and then we're going to move into new examples which we do every week and i thought what we'd do today is place a couple of trades where we're comparing the benefit of trading a stock and and trading you know an option strategy and then you know when when we might do one or the other what the results will be and we're going to place those trades and then we'll track them okay so let's come out to the platform so what's happening with the s p 500 this morning and it's interesting i mean overall over the last year we've certainly seen an uptrend a little bit of a pullback that has some people it's giving them butterflies um but you know it looks like we're kind of mixed you know we open down a little bit but it's rallying you know after the open so you know this is a candlestick that's just a few minutes old today but we saw you know about a four or five day pullback um you know we and and some might say really you know we've saw seen a pullback really since the beginning of september not unusual in the month of september september on average is usually down about half a percent by the time the dust settles on the month but there have been months where it's been up eight or nine percent and months where it's been down 10 or 11 so you know and everything in between so we can see that it looks like it's setting up a bit of a flag pattern here what type of flag the jury's still out on okay so how about the nasdaq so the nasdaq again when we step back and we look at a year you know that's been uptrending and and again like the s p 500 opened down this morning and is now rallying um but still hasn't made it above where it closed yesterday so currently down um you know four tenths of a percent how about the russell okay so here's our our friend the russell that came into this range back in february hit an all-time high in march which it hasn't repeated and has been trading in this range so we're going to come back to this one because we placed a trade on it last week and we're going to place another trade today and then we've got the dao and the dao you know we were talking about the tao and saying you know it was really uptrending at the end of last year beginning of this year really right through april it was strutting at stuff and then it kind of got into this range and it's been hanging out there um and and just recently broke out and we went oh okay so technically old resistance um becomes new support and then it's like whoopsie daisy no it didn't and it came right back into this range so um so maybe the dow's gonna hang out in this range for a while and you know we'll just have to you know wait and see and i'm haven't looked at the vix yet but i'm guessing it's back up um and interesting so it hasn't really spiked up you know yeah is it up but it's up you know just a tit you know up just a little bit here now it's you know it's kind of done a lot of moving in the first part of the day but it's actually that green candle means it's it's higher than it was when it then it was when it closed yesterday but it's losing ground since it opened so that's kind of that's kind of interesting isn't it okay so we're looking at markets that are in the longer contacts bullish they've been retracing a bit in the last week the last two days have put smiles back on the faces of the bulls because we saw you know some nice movement to the upside yesterday you know 90 of the stocks in the nasdaq and the dow were up um you know or thereabouts i do post something on twitter on pretty much a daily basis well i try and hit it four or five days a week um let me just come over here so if you want just at a glance you know the nasdaq was up almost a percent yesterday 90 of the stocks in that index were up um and so you know we had to do a dance to find the true leaders and you know the uh s p up 1.28 yesterday with energy up 3.4 and for the financial sector up you know 2.75 this is the stocks that are listed on the s p 500 um you know so the majority of stocks up in that index as well okay so let's come and look at i want to start with the russell because this really frustrated me um i we placed this trade last friday and i guess it shouldn't be a frustration that you know i don't know how this happened but we ended up being in this trade not even a full day and ended up out so there must be some type of glitch that you know i put in an exit here at 20 cents and we're already out of this trade and so what we're going to do today and you know what like we made 150 on this trade you know because we got paid a dollar 70 a share to get in on a multiplier of 100 so we got paid 170 we closed it back out for 20 bucks so our net gain was 150. so the idea here for those that are new to the strategy of an iron condor and i'm assuming here that you understand what a credit spread or a short put vertical and a short call vertical r but we're going to come back to the russell and this is going to be our first trade today um and so the russell has been trading in the sideways range and it's a big range it's been trading from about you know it's come down and hit this 2130 level many times um or you know 21 30 ish level but when it does hit it tends to come down hits it with a bang and then bounces pretty decidedly and it's done that many times now and then it came up and it hit about 23.60 um and this was a little if i come out six months well it's been in this range longer than six months wow so it hit 2360 once but it's never hit it again after that the highest it's hit has been around this 2340 range yeah yeah so it's hit in the 2340 range and so the idea here you know when i get a little more what i call up close and personal the idea when something's in a range like this is you say well i don't think you know for the next 20 to 30 20 to 50 days it's going to go above this 2340 mark so i'm going to sell a short call vertical and then i don't think either that it's going to bust a move and break below this level over here this you know 20 140 level so i'm going to sell a short put vertical here and so on the short put vertical i have a successful trade if it stays above anywhere above where my sold strike is and with the short call vertical as long as it stays below here we are happy campers and so that's the idea yeah so that's what we're going to put on now if you've already put on a trade and you're doing what we call in this class wash rinse repeat we're just going to do it again we could come to the monitor tab and just say you know what click on these three little icons because we want to do the same trade basically again maybe changing the expiration date we can just say create a duplicate order i want to do the same trade again yeah yeah so mia actually this trade was a profitable trade i'm just um my only disappointment is that there must have been a glitch in the paper money system i'm i'm and i'm gonna call and talk to the trade desk because um you know we should still actually be in this trade you know according to my spidey senses yeah so we're going to place another trade and this time we're not going to place the exit when we place the trade and so that next week we can look at it again but the reason i went looking for this trade was because we placed this trade last friday and so last friday was the 17th and there's a reason i'm bringing this up it's 15th so last friday was this day right here and so then on monday when the market really tanked and this came down a lot i thought you know what i might be able to buy back the short call vertical piece of it and i could have i could have uh bought it back for about 80 cents and we got paid close to two dollars for the short call vertical piece of it so you know 60 of your max gain you know over one trading day is a pretty decent return um but i thought well let's just sit on our hands and if it stays you know we'll end up getting you know what we wanted which was out at the the 20 cents okay so we're going to if but if we didn't already have this set up and we were going to set up an iron condor and let's say we want to start we're we're going to sell the 2340 and buy the 2345 above it in this class where our our premise is that we started with a 20 000 account and didn't want to risk more than 400 we now have about 25 000 in the account so we don't want to risk more than 4 500 500.
so four to five hundred okay so we are going to come to the trade tab we've got the russell here we are going to look out you know about that 20 to 50 days if we do a shorter time frame we might be able to do two trades in that 50-day time frame so we're going to look at the october 15 and we wanted to come up to and i wrote it down 23 40. so our 2340 has a delta of 17. that means that we have an 83 chance kind of sort of it's kind of a thumbnail it's not exact and it will change if the price of the stock changes 2340 and if we are selling a vertical because we just want to see what we're getting for each piece so we get a dollar 65 and this is on a 10 spread oh we may have to go out these are all ten dollar spreads and that would be more than five hundred dollars worth of risk so we're going to have to come out to the october 20 seconds if we want to go out more than 20 days now the advantage of going out to a weekly we're not going to have as much volume but what we will have is we will have five dollar wide strikes so we're going to come out here and now we have to go to more strikes okay so we're going to come out to our 2340 so we're kind of way out here so 20 delta cell our vertical and we're getting a dollar fifteen and this is you're saying well that's less but it's on a half half of you know the risk it's a five dollar wide strike so we're getting over a dollar there and maybe your guideline is on a five dollar wide strike you'd like to get you know at least a dollar on each side um you know that depends on the individual investor and then on the other side we want to do the 2140. so why am i doing this well the reason that we're doing this is just to make sure that there isn't a side that isn't pulling its weight a lot of people don't bother going through this process so the 2140 has actually a higher delta but as long as we're okay with where those strikes are and we get a dollar on that side and so um that's what we're going to set up so we're going to delete i'm going to come here 2140 and we are going to sell an iron condor and i'm doing this you know we're going through this again um you know for the people who may not have been with us when we did the last one so the put side is right 2140 2135 but the call side we want the sold strike on that to be 23 40.
oops come this way sorry if i'm giving you whiplash 2340 and then we wanted it to be 23.45 five dollars above so what we're doing is creating what i like to call a credit spread sandwich okay so we've got the 2340 that we're selling on the call side the 23.45 five dollars above and then the 2140 at the bottom and the 21.35 our credit is 2.20 so how much are we risking well we're risking the difference between the two strikes or five dollars minus the two so we're risking about two hundred and ninety dollars is that within our realm of acceptability yes it is so and and normally we go in and put in an opposite order we're not going to do that today we're just going to tuck this into our iron condor bucket there we go are there any questions on that i think wash sales apply to stocks but talk to your accountant we really are not in a position to provide tax guidance in this class that's an entirely different skill set i am not going to talk about butterflies today edward but um a great idea for a future class um yeah interesting i i'm not quite sure so this is where if you ever have anything happen in your account by the way whether it's paper money or your live account and you don't understand why it happened call the trade desk they are absolutely fantastic um yeah yeah and we didn't actually what we put in on the russell last week was a target for our profit at eighty or ninety percent i think it was ninety percent yeah okay i'm just looking at the chats here okay so there we go so there's our first trade um let's come back over here i don't know if i heard that little ping a ding ding so it hasn't closed yet so if we want to see this trade here it is it's saying oh we're asking for a credit of 2 30 and it's at 2 15. i
didn't realize it went in at 230 so if we wanted to cancel and replace that just to make sure that it goes in for us we'll unlock it 215 confirm and put it in our iron condor bucket and send okay okay so we're gonna let that one percolate i'll make sure that it goes in today okay so now on the monitor tab i just wanted to look at a couple of other things and one of them was our short put verticals so and the first thing i did was open them all up to make sure none of them were expiring today yeah yeah so we wanted to make sure none of them are expiring today and there aren't um but we have here um a short put vertical on apple at 150 and 148 we have a week of time left and you know it's trading at 146. so some might say well that you know it could easily go back up through both strikes and it could but today it looks like it's coming down and here's our 149 which seems to be you know this was kind of trading in a range and so we could look at that and say well you know what um if i exit that trade now will i take my max loss no i'm still you know 42 dollars away from my max loss so you know or 47 and i have three contracts so i could lose another 150 dollars on this and so if you're saying yeah with the market going sideways and apple having a previous resistance level or ceiling here i'm a little concerned it might get stuck in this range again i'm just going to take my lumps and close it out and so are we taking a loss on this yes there we go ding ding we got it um so are we taking a loss on this yeah are we happy about it not necessarily but a 300 loss beats a 500 loss at least it does in my books um and there are occasions when sometimes we end up you know having to recognize that the trade did not go our way and so if we wanted to kind of track this what we could do because we're doing this to learn is we could leave one in here and just track it but we look at apple all the time so we're going to just close this out we have an exit on this so we're going to come to apple we wanted to close it out for 8 cents it's trading at 156 right now so we're going to replace that just open the order and say let's just take our lumps so we're just going to take our lumps on that one and then we can go back next week and if it really recovers go well you know we should have waited but typically we try and close something out at least four days before expiration so that we're not we don't end up in this position where we're stuck so we've we've exited that one for a loss and so that basically you know wiped out all the profit from our last iron condor and then some and you know and that happens we have to plan for that so now apple were done the rest all have three weeks left and we've got a profit on all of them you know so they're percolating along car you know is up um you know we've got half our max gain and we've only been in this trade a week you know we still so this was a four week trade because car i think only has monthly options and we can come back to a much shorter time frame here yeah so this only has monthly options but when we come out and we look at this you know it's doing exactly what we had hoped it would do and so we can just let that one percolate but next week if we have 70 percent of our max gain we may say you know what maybe we just want to you know close this one out and take our profit um and i'm not going to spend a lot of time on these but you know crocs kind of the same thing even though crocs is pulling back today and we've lost half our gain we need this to stay above 145 and it's currently trading at 158. now does that mean we should be cocky and not pay any attention no but what it means is we still have you know quite a buffer before it would hit our strikes and microsoft is trading you know eight dollars above um you know and we've lost part of our gains here but we still got you know three weeks to go and then the same on tesla actually tesla we've got over half our gain here um you know and two weeks to go and time decay continues to work for us so our strikes are at 700 and 695 we have one expiring in two weeks one in three weeks and you know both of them are you know in the greens so to speak um and you know are where's tesla trading 50 above these strikes so that doesn't necessarily mean that you're in the clear tesla can you know the average true range on that one is i'm guessing close to twenty dollars a share it's a seven hundred dollar stock um and then with these long call verticals now the long call vertical only has 13 cents left so with this one we need to really hope that we're wrong but chances are so we might say well you know for 26 dollars we'll leave our hat in the ring we've lost we've taken almost a max loss on this one so this is you know the example where um you know we're down a similar amount that we were down on the short put vertical um and car is flipping along and just behaving exactly as we had hoped it would okay so now we're going to go and look at a couple of new positions for this account and the first one and let's see what's happening with these two companies so the first one i wanted to bring up is mosaic okay so oh if i could only speak uh okay so mosaic is playing nicely today and we can see i posted something on twitter on this yesterday and said kind of you know you know i spy with my little eye and i pointed out that we had seen a diagonal resistance breakout on this stock and it had broken out came back to retest which we often see and then continue to the upside now some might say well you're seeing a diagonal resistance breakout but i'm seeing like a horizontal resistance breakout and in fact what i'm seeing kind of a bit of a double bottom here or you might say oh well i saw that as like a cup and handle but either way if we look at what what might we expect the move to be you know if i get rid of this the idea is you know the height of this double bottom is about what we'd expect it to move okay and so you know what was the height of that double bottom well if we come down here you know ish let's call it 29 ish to 35. oops i didn't realize i had to
change that drawing tool so if we go from 29 to 35 that's about a five dollar move we'd say okay from 34 where it broke out if we add five our target could be 39 and so we could do this with a stock you know how much money do we have available to trade in this account well we have fourteen thousand dollars on a total balance of twenty five thousand five hundred and seventy eight you can see i've got our little rules down here um and they may be tiny but they're kind of like aladdin's living space or the genies living space you know teeny tiny living space phenomenal cosmic powers um and so don't underestimate the importance of you know keeping to your maximum risk per trade and your position size and some might say well on a twenty thousand dollar account why would you allow a max position position size of five thousand well so we could do things like we're talking about we could buy a stock you know and you know but if we wanted to do like a buy right covered call strategy one of the challenges is like a stock would have to be 50 or less and so some of these trading strategies we may want to use this stock because we have 15 000 almost 14 760 sorry 785 dollars sitting there not making any money for us you know so so we are going to look at this as both a stock trade because this is under 50 so we could buy 100 shares of it and then we could just put a target on this and say hey you know what when this gets five dollars above that to 39 we're gonna get out okay so yeah 29 okay so we're going to come to the trade top and we don't hang out here on the buy stock bar a whole lot but we're just going to right click and then the other question is well how much are we risking well we're risking 3 565 if we don't put some type of exit in so if we say hey you know what we're we see a double bottom or a cup and handle or you know a horizontal breakout if it goes back below 34 by 3 or more it's not going where we thought it was going to go so we are going to exit the position so 34 times 0.97 is 32.98 so our stop on this is going to be 32.98 and so how much are we risking if we buy a hundred shares and we get in at 35.50 well we're risking you know less than hundred dollars does that mean this rule of max risk per trade under 400 yes it does okay so trade tab right click we are going to buy custom with an oco bracket 100 shares when do we want to get out we want to get out when it hits 39 so we are putting a cap on how much we can make so this is a trade with a target a target exit so you know we could make 336 dollars that's our max gain but 336 dollars on a 35 investment that's like almost 10 percent if my math is right 336 3 36 divided by 35 64.
9.4 so that's a pretty good return now how much could we lose well we could lose about the same amount if we're saying we could lose 300 on it if our stop is at 32.98 okay good till cancelled 3567 is our current price and i'm just going to put this in and we're going to well do i have a swing trade we could put it it's not technically a swing trade but we could put it in there because it's a trade with a target trade with a target based on double bottom pattern and you might say like why are you putting that in there because you may look at this and go if you're new like why did i you know why did i do that and now you've told yourself why you're doing that and then we're going to compare this to a trade called a synthetic now what's a synthetic a synthetic is where we are both buying a call either the first strike in the money or the at the money strike so if we buy this 36 it's trading at 35.66 do we have other people that have done the same thing today well we have 23 and 64 contracts that have already been placed today 2074 were on the books when the market opened there's a 48 more or less probability that this will be in the money at expiration and so if we look at this and say okay if we just buy a call and put a target now this is expiring in 21 days so excuse me because we are going to go out a little bit further to give it a little more time and we have a little you know we have fewer people playing but what we're going to do is buy a call and we'll benefit if it goes up and then we're also going to sell a put and we're going to buy the 36 call and sell the 35 put which is just below where it's currently trading or we might even say you know what i'd rather sell the 34 put that's right at that breakout level so we're going to right click and then we are going to come here to synthetic and we're we're buying the call and we're selling the put so you know i know you guys all know this what does selling the put mean well it means we're obligating ourselves we're agreeing to buy the stock at thirty four dollars at any time between now and expiration and what's this going to cost us to get into the trade three thousand five hundred and seventy five dollars like the stock no sixty sixty seven 67 and how much could we make well technically you know the amount we could make is unlimited because you know this 36 call it could go to the moon but if we're trying to treat this like in an apples to apples type way we can put the same parameters around this and say uh uh in order to really compare this we're going to create an opposite order and we're going to make it a market order and we're going to put the same target in the same stop in so i'm going to come here to my little sprocket and say hey if this goes out or above i always put the target in first 39 which is our target on this um shut the trade down and if we are wrong and it doesn't go in the direction we were hoping if it hits 3298 we're going to exit the trade okay so hit save when we come to confirm and send on this we want to buy one combo so this is a synthetic where we are buying the 36 call selling the 34 put we're paying 70 cents to get in and then we want to exit when mosaic hits 39 or above or if it goes below 32.98 how much can we make we've already discussed this it it's technically infinite although we have put a cap on it we have put a cap on it how much could we lose if the stock was put to us and went to zero we would be out three thousand four hundred and seventy dollars does that meet our trading rules it does not that's why we put an exit in so it doesn't take targets and exits into account when it gives us our max profit max loss but one thing and so we could put this in our in our swing trading but this technically is a synthetic and so we're going to put this in here so that we can compare it to the you know buying a stock which in trader speak is long stock with our a target position so we're gonna send that in so a synthetic mimics buying the stock and has a similar delta now we didn't have exactly the same strikes but you know you have a delta of 52 when we buy the stock the delta is one um you know but this is 52 and the 34 strike is 35 so it's a little less directional than the stock yeah so when we place a synthetic if there were a dividend declared we would not benefit from that okay so that's mosaic and i wanted to do another example on ntnx and we did this in our class yesterday now you can see that today it looks like it might be pulling back and actually we have you know only a couple of minutes left um in this but you know we could look at this and then i talked about this particular stock in portfolio management basics yesterday um you know when if you go out to the td ameritrade platform there are analysts that have said i think that this stock is going you know up from you know to 48 there's somebody that had a target in the 50s and then somebody that had a target in the 60s um for this and they could all be wrong and this stock stock could come back down but when we look at it over the last year you know it's been strong and so what we might do is you we could put in a conditional order and say hey if this goes up and you know what might a target be and and for this one so you know people might have different targets and you know some might want to use a feb target some might say well i see kind of a a muddy double bottom here you know around the 33 levels um and others might say well you know i see that it's kind of come up here and they might draw their fibs this way and say you know my target would be 48.
if we looked here so that gives us a 161 target of 48 and if i get rid of that and we look at here this was 32 to 39 a seven dollar move or 33 to 30 almost let's call it 40. so 33 to 40 a seven dollar move would be 39 you know 40 uh 46. so it's in the same neighborhood that 46.48 and so if you want to take that as homework given that we have this candle appearing today that says it may pull back again we could put in a conditional order and say you know what i just want to buy this if it goes up and so we'll look at this one again next week okay but my time is now up in one minute i'm supposed to be wrapping up here and you know like it's we could do this all day long couldn't we so um the trading journal by the way ken rose pointed out to me that the trading journal attached to this class is a little different than the one in the vertical class and given that the majority of what we do in this class is verticals i have asked them to update the trading journal so that you can put verticals in and so with a short uh with an iron condor it really is just two vertical trades so you could put it in that way um and i will post something on twitter when that trading journal is updated but in the meantime if you go to the wednesday short vertical class either one in the archives or one that's upcoming that trading journal is structured for verticals also you know so take advantage of that and the other thing if you're newer you're saying gee barb does a lot on on short put verticals you know not so many short call verticals lately because the market's been pretty bullish but if you want to really hone your skills in that arena go to ken's class on wednesday three o'clock eastern okay so that's um that's that so coming up next and that'll be at um noon it'll be at noon eastern is getting started with stock investing with connie hill so if you have enjoyed this please smash the like like button subscribe to this channel if you haven't done that already i think that we have done what we set out to do today and we'll do more of it in the upcoming weeks i mean we're here every friday my friends we look at you know what we've done what went well we also discussed the things that didn't go well because i think sometimes we can learn as much from the trades that didn't go our way first of all to be grateful that we followed our rules and didn't get cocky because we had 10 winning trades in a row and double our position size and then get hammer smashed and do i know people to whom that has happened i do is it pretty it is not so position sizing and don't think like oh i can't lose that's like don't even think that thought okay so we've done what we set up to zoo to do our market overview we've managed a few trades we've looked at some new examples we've placed a couple of new example trades we've exited a couple of positions and we're going to do more on this comparing the stocks and the options in upcoming weeks i thank you all for being here huge thank you to ken rose for joining us in the chat and keep in mind everything we discuss in this class all the examples we do for educational and investment purposes only know that options carry special risks with them and we need to be aware of what those risks are before we place a trade if you're new to td ameritrade you've got to apply for option trading privileges yeah and be aware of our transaction costs that's a wrap my friends i hope you all have an absolutely amazing weekend go out and hug someone you love and i will look forward to seeing you in a webcast coming up soon everyone take care bye for now i
2021-09-27 16:37
